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First Time Buyers

I just read an article about how Bank of America is putting into works methods to streamline and speed up their short sale process. My response – awesome! My reality – doubtful. A while back, the government challenged the banks to the HAFA short sale which had the intention of speeding up the response time to 45 days. Reality was that nothing much changed and short sales were still horribly long.

If this does actually work, this is great news for buyers and sellers. It’s great news for sellers because they won’t have months and months of the negative impact to your credit score as the bank sits on the short sale application. It’s even better for buyers because they’ll be able to move into the homes they want to be in even quicker than they are now!

FHA Mortgages are considered one of the best ways for first time home buyers to purchase a home. The minimum required 3.5% down payment is smaller than that of conventional loans, and the credit and income requirements are slightly looser than conventional financing. The rates are usually slightly better and it’s a great way to get into a property. That being said, the lower down payment is riskier for lenders since the smaller down payment means less vested interest in the property by the buyer. Just think about it this way…wouldn’t a buyer who put 20% down towards their home purchase be more likely to make their payments than someone who put down only 3.5%??

This is why FHA financing has mortgage insurance, which is insurance on the loan to make sure that the buyer will continue to make their payments. Starting April 1, this insurance amount is about to increase, and FHA mortgages will be more expensive to use.

The up front mortgage insurance will increase from 1.0% of the purchase price to 1.75% of the purchase price. This can be rolled into the mortgage over the life of the loan, but will add more to the monthly payment. The monthly mortgage insurance is increasing from 1.15% to 1.25%. This will also add costs to the monthly payment. Both of these additions will make it more difficult for buyers to qualify for as much of a mortgage as they would have prior to April 1. It may very well be time to consider conventional financing….

Every time I think mortgage rates can’t possibly go even lower, they continue to surprise me. Here’s a great visual for you to see exactly what rates have been doing since 2000. It’s a great time for first time buyers, investors, and all buyers to get in the market or refinance their existing mortgage. If you need referrals to some of my favorite lenders, please check out my “vendor” tab on this site…and then start saving money!

The current real estate market is a funny thing…you either love it, or you hate it. Most people fall in one of these two camps and are outspoken about the side they are on. The one side knows that this is an amazing time to buy right now. The combination of historically low interest rates, low – or “normal” – home prices, and the number of foreclosed homes being sold at auction make it a great time to get in the market and purchase a primary residence or an investment property. Every time I utter the words, “Rates just can’t possibly go lower”, they somehow find a way to do just that and prove me wrong.

There are so many buyers taking advantage of the market right now – and many of these are first time buyers, and many more are savvy investors. For first time buyers, it is a great time to purchase a starter home where six years ago it would have been impossible. For many real estate investors, there is an amazing opportunity to buy long term rental properties, or “flip” homes. These investors that flip homes buy properties at auction with cash and “flip” the property back to the market for positive income. They may or may not do repairs or updates to the home such as new carpet, paint, and granite countertops or a new kitchen…things that today’s buyers are looking for in a home. Other investors simply take advantage of low starting price of foreclosed properties, and buy a newer home to simply put it right back on the market without spending a dime!

On the flip side, there’s a whole lot of homeowners who are more or less stuck in today’s real estate market. These homeowners may be under water, and their mortgages may be looming over them as they wish they could upsize or move to a different location. For these buyers, I always suggest that they open their minds to think creative and be creative. Recent communication from the President may possibly bring good things for buyers – such as the ability to refinance an underwater loan, or even qualify for a principal reduction – but I wouldn’t bank on it. The government programs I’ve seen come up in the past few years have been less than successful. I would urge you to consider your options and meet with your lender to sit down and sketch out a two year or a five year plan. I believe that interest rates will stay low, and prices will be great over the next few years. Don’t lose faith – you haven’t missed the boat of the right time to buy just yet. If you need a lender referral, I’d be happy to provide some I’ve come to trust and respect.

It’s not all doom and gloom, and I hope that 2012 will bring positive changes – either by enacted legislation, or by an improving market. Be proactive and take this time to pay down your principal. Skip a few cups of coffee each month and put a few extra dollars towards your principal. Set a goal for yourself – you’ll end up paying down your mortgage faster than you think. Then, once you’ve met your goals, consider refinancing and keeping your current home as an investment property while you move into something you’ve been dreaming of. Your lender would be the best point of contact to help you sketch out these goals, and I’d be happy to help in any way you see fit. Good luck!